The present invention relates to a computerized apparatus and method that provides a composite risk program combining different types of benefits.
Various types of insurance are known in the art. Life insurance, which pays a benefit to a named beneficiary upon the death of the insured, may include both whole life and term life insurance. The most common type of health insurance is a comprehensive policy that includes coverage for numerous health-related expenses, including primary-care physician office visits, prescription drugs, and hospitalization. In addition to these types of comprehensive policies, however, there are a number of more specialized health insurance products offered in the market today. These are intended to provide supplemental or additional coverage where a comprehensive insurance policy may exclude coverage, such as providing cash benefits when a large annual deductible may be incurred in a comprehensive policy. The various types of specialized health insurance products include, but are not necessarily limited to, accident, supplemental disability, critical illness, and supplemental hospital indemnity.
Accident insurance generally provides lump-sum payments to an insured according to a schedule of benefits when triggered by certain injuries or conditions defined in the policy. The purpose of such payments is to defer costs generally associated with these injuries, such as ambulance fees, emergency room and hospital charges, physician and other medical professional fees, and medical equipment. Disability insurance generally is used to replace all or, more frequently, a set fraction of an insured's regular income upon the occurrence of a disability that prevents the insured from continuing with his or her employment. These policies often distinguish between benefits for partial disability, which may limit the work performed by the insured, and total disability, in which the insured is no longer able to continue working. Critical illness policies (sometimes also referred to as “dread disease” policies) generally provide an insured with a lump-sum payment or schedule of benefits upon diagnosis of certain major illnesses or health conditions, such as cancer, myocardial infarction (heart attack), stroke, and renal failure. The lump-sum payment may vary depending upon the particular illnesses diagnosed. Additional benefits may be included in some insurance products of this type, such as daily benefits for hospital stays or additional payments for particular types of treatment options chosen. Finally, hospital indemnity insurance generally provides a lump-sum payment to the insured upon admission to a hospital, coupled with a per diem benefit for the length of the insured's hospital stay.
Both life insurance and the various types of supplemental insurance products described above are often offered to potential customers through a group insurance setting, that is, as part of an over-arching policy that is provided to the potential insureds through their employer. Group insurance is often advantageous because risk is spread across a larger pool of insureds, and premium costs may thus be lower than individual insurance policies of comparable coverage in many cases. In addition, employers often pay some or all of the insurance premiums associated with an employee and/or the employee's spouse and dependents as part of an employee's compensation package. Even where the employer is able to defer little of the cost of these specific health insurance products, the employer may wish to provide the opportunity to receive specific health insurance coverages through a group insurance policy to employees who may not be able to afford a comprehensive health insurance policy.
A significant disadvantage associated with the various supplemental and specific health insurance policy products on the market today is that, since a separate cost is associated with each of the specific types of coverage made available, the potential insured with limited financial resources is faced with the difficult task of determining which of the policies should be purchased. In essence, the insured is being asked to guess which risk is most likely to occur for him or her. Guessing wrong in this circumstance may mean that the insured faces a catastrophic health event without any coverage at all, despite having paid premiums for an insurance policy during the period in which the event occurs. For example, suppose that the insured chooses specific insurance policies through an employer group program for cancer/critical illness coverage and for accident coverage. The insured then suffers a long-term, debilitating illness that is not covered in the cancer/critical illness policy. The insured, despite having paid premiums for health insurance, will receive no benefit whatsoever and, if rendered disabled by the illness, may be unable to provide support for himself or herself as well as his or her family simply because he or she guessed wrong in not choosing disability insurance.
A related difficulty with traditional supplemental and specific health insurance products is that they are structured in a way that is confusing to the typical consumer. Such insurance products are generally offered to consumers in a group setting by means of an employee setting aside time to meet with an insurance company representative at work. During this time, each of the various supplemental insurance products are presented, and the employee is generally left with a dizzying array of choices and trade-offs to consider. Since the outcome of the employee's decisions may have a significant impact on the employee and his or her family and dependents in the future, the employee will be under considerable stress in reaching the best decision. Unfortunately, the employee may be unwilling to admit to confusion engendered by the many choices due to embarrassment, and the employee may ultimately make a decision concerning insurance products that is not the optimum decision for that employee's financial condition and family circumstances.
Another important disadvantage associated with supplemental and specific health insurance policies is that their benefits structure tends to result in high premiums due to increased underwriting risk. Most types of health insurance do not provide an ultimate cap on benefits. For example, a long-term disability policy may provide payments as a fraction of an employee's income for the working life of the employee. The underwriters must assess the risk that a young employee will be disabled early in his or her working career, leading to a very high payout for the insurer. This will be reflected in the premium associated with the policy. Likewise, an accident policy may provide the same payment regardless of how many accidents a covered employee is involved in over the period of coverage. While this open-ended coverage may initially seem desirable for the insured, it may result in a premium that renders the insurance cost-prohibitive, whereas the employee might be able to afford coverage if an alternative policy with a lower premium were offered.
The art includes insurance products that have attempted to combine life and health insurance products in some manner to address some of these disadvantages. One class of such products combines term life insurance—which historically has been associated with a one-time, lump-sum cash payment—with a similar benefit paid upon the occurrence of cancer or another critical illness. For example, Columbian Life Insurance Company of Chicago, Ill. has offered a CriticaLIFE 20-year term life insurance policy that alternatively pays its one-time, lump-sum cash benefit upon the occurrence of invasive cancer, stroke, major organ transplant, blindness, heart attack, kidney failure, or paralysis. The policy premium is based upon the age of the insured and the cash benefit desired. Once the lump sum payment is made, either due to the death of the insured during the term or the prior occurrence of one of the covered illnesses, the policy is immediately terminated. As a result, the underwriting risk associated with this type of policy is capped at the policy's lump-sum benefit amount, and the result is that the insured can receive some insurance coverage upon the occurrence of a critical illness at a reduced premium compared to traditional critical illness supplemental insurance. A similar product in the whole life field has been offered by LeadersLife Insurance Company of Tulsa, Okla. under the brand Lifestyle Plan. This product combines a whole life insurance policy with supplemental coverage in the case of critical illness. Only a fraction of the death benefit is paid in the case of critical illness, however, leaving the remaining fraction to be death benefit to be paid upon the death of the insured.
Another class of products excludes life insurance but aggregates coverage for various types of critical illnesses. For example, the Synergis plan that has been offered by Kanawha Marketing Group of Lancaster, S.C., provides a one-time, lump-sum payment upon the occurrence of certain critical illnesses without a life insurance component. The coverage for particular illnesses—including heart attack, stroke, and invasive cancer—may be offered standing alone, but the insured could also combine coverage for each of these critical illnesses into one plan. Upon the occurrence of any of the covered diagnoses, the lump-sum payment is made to the insured and the policy is terminated. The term of the coverage may be the life of the insured, with premium payments made over the insured's lifetime, or alternatively higher payments may be made over a 20-year span, after which coverage is continued at no additional cost. Other variations in the art on these themes include life insurance with health insurance riders, health insurance with accident riders, and accident insurance with disability insurance riders.
As an alternative to a traditional insurance offering, employers may also offer certain types of benefits to employees through a self-funded trust administered under the federal Employment Retirement Income Security Act of 1974, as amended (ERISA). Under an ERISA plan, the funding for the plan is generally provided by the employer through a trust established for this purpose. The trust may be funded entirely by the employer, by the employees, or some combination of both. The plans are thus self-funded since the trust is intended to provide a source for all employee payments, often with a re-insurer backing the ERISA trust should the benefits payments exceed the amounts held in the trust.
References mentioned in this background section are not admitted to be prior art with respect to the present invention.